The problem with buy and hold and pretty much every current strategy is that its distorted by the huge 40 year bull market we've seen in the USA. Every American asset has gone up big time - of course "time in the market" is a good thing.
If you look at Japanese or European stock markets they tell a very different story. Similarly the next 40 years in the USA could be a miserable time for investors. I can't believe how much people take for granted that stock markets "usually go up 7% a year" or whatever.
No one really knows but it wont be as good as the last few decades.
> No one really knows but it wont be as good as the last few decades.
Such confidence! The first part is of course true, but you’ll make money teaching the market that you are smarter if the latter is true.
Perfectly possible that AI kicks the economy into overdrive in the next few years and growth increases. I wouldn’t bet my house on it, but also wouldn’t bet my house against it either.
Absolutely no chance that AI is able to do that. Investing decisions are too subjective for the current state of AI. A good value investor knows this… and also knows that you don’t need a bull market to make decent returns.
Or, fewer and fewer people are needed for approximately the same amount of production. This may lead to a further bifurcated society.
I do think that a service-oriented economy has many, many more nooks and crannies to hide non-productive jobs, though, and that could perpetuate the “bullshit job economy” hypothesis.
Fewer people are needed to perform a specific job as we do it today. But there will always be room to improve the products and services we produce and to make them cheaper.
Consider the steam-locomotive. It was a great invention but we didn't stop there now we have bullet-trains and hyperloops.
There is also plenty of room at the bottom as famously noted by Feynman I think. We can make products smaller to make them easier to carry around. New cheaper price points create new demand and new markets.
Also as economies improve, people will have fewer children, because they don't need them to take care of themselves at old age. So it's not like we will have too many people having nothing to do.
On the contrary I think AI can be the great equalizer: Rather than having fewer people who know how to do things, we will have more people who are able to do things with the help of AI.
The technology by itself will not produce a great society however. We need democracy to accomplish that. As people will have more free time they will have time to study and more and more people will demand democracy because they will understand it's the only way to avoid wars.
Yes, exactly. And agreed, it’s not clear. (Hopefully I conveyed wide error bars, my whole point is that certainty seems unjustified at this point in time.)
It's not even that, the way markets work is inherently unpredictable, in a self fixing way.
If someone finds a way to actually predict the market, then in taking advantage of that they will add unpredictability into it again. This is part of the entire basis of how markets work!
The number of people on planet earth who deeply understand the current state of the art in LLMs, the available information in a format an LLM can "reason about", good ways to condense information so that X v Y decisions can be made across a lot of Xs and Ys, and deeply understand how to do value investing in a practical way and enough about a set of industries to pull it off, is about zero.
Regardless, I'd happily take a bet at even money up to a reasonable sum that we'll wake up in 20 years to find that a system using LLMs has just destroyed the market doing fundamental analysis, for 15 years.
How is that trivial? Even one task done a few times a week taking half an hour less is at least a 2% increase in productivity (assuming these tasks are work related and a 40 hour work week). "A lot" of such tasks would easily add up to 10%+.
Half an hour of time recovered using a system not specialized to the work at hand. With better tooling and integrations that could scale to several hours a day spent doing more valuable work.
Of course predicting the future is impossible. But there’s a lot more than 40 years of data to support the buy-and-hold idea. The updated Trinity Study spans from 1925 to 2009, so includes the worst economic calamity in US history. It concludes an inflation-adjusted 4% withdrawal rate is safe for 30 years in 95% of historical 30 year periods. An inflation-adjusted 3% withdrawal rate succeeded in every 30-year period.
Why? Retirement is a very recent phenomena. The idea of someone earning enough during their working life to then fund several decades of non-working life is a very modern thing, maybe only the last sixty years or so. Only a very rarified few were ever wealthy enough to actively stop working prior to becoming physically unable to work. And then, for most all of human history, those too old to work lived out their remaining few years being taken care of by their children. I'm would not casually assume any "right" to the modern concept of retirement.
You could apply this argument to so many modern workforce changes, for example, the 40-hour 5-day workweek. Throughout history, most workers have not had the kind of rights that they do today.
I think we all deserve to make progress on things like retirement instead of making arguments like this. Sure, retirement hasn’t always been a guarantee, but can we agree that this isn’t a good thing?
We never question the desire to innovate in how to make money, but we’re often very quick to dismiss the idea that we can also dream to innovate society in a way that’s decoupled from profit, which is sad.
While I agree that most of society should be the beneficiary of productivity gains, I’m not sure retirement is still a net positive. It seems like a lot of health and well-being is related to being a valuable member of society and fortunately or unfortunately, for many, work provides that function.
Ugh, I hate this way of thinking. Perhaps we've all been brainwashed to believe this by capitalism?
I'm perfectly happy pursuing my own interests, at my own pace, without having some overlord making sure I'm maximizing value for some corporation. Sure, I don't want to just sit around doing nothing, but there's a wide gulf of possibilities between that and full-time employment.
I think you missed some of the nuance in the statement. It is not advocating for staying in the grind forever.
But for many retirees, they have never developed the mechanisms to continue being a productive member of society without structured work. The net result is a general drop in well being and health in their “golden” years.
Also, i made a comment where I think our relationship to work needs to change. I think that speaks to your point. I don’t think a false dichotomy between “working for the capitalist overlord” and “doing whatever I want” is what I was after.
> and fortunately or unfortunately, for many, work provides that function.
I agree with this, but the problem is that there is no guarantee of work being available to everyone. With the rise of AI and hyper-specialization of work, that problem is only going to get worse.
> I agree with this, but the problem is that there is no guarantee of work being available to everyone. With the rise of AI and hyper-specialization of work, that problem is only going to get worse.
The key here is to make sure that automation and cost efficiencies make it through to the production of necessities, and we don't prop up artificial scarcity.
There are an effectively unlimited number of jobs that employers would pay someone $0.01/hour to do. Not as many that employers would pay $100/hour to do. So if you need to make $100/hour to afford housing and medicine, that's a problem. But if we reduce the artificial scarcity and regulatory overhead in these industries, so you only have to make $5/hour to afford them, we're in a much better place. And all the better if lower costs allow someone to make a living at $2/hour.
AI and automation can help to reduce those costs. As long as they're in the right places (i.e. production of necessities) and we don't have regulatory capture preventing it from happening there.
How do you see automation helping housing? I work in an org interested in 3D printed structures and it still seems a long way off. Or are you looking at improvements in logistics that make it easier to live in less expensive areas?
It can be more than one thing. But one of the interesting possibilities for housing is modular construction. You mass produce homes on an assembly line as walls prefitted with plumbing and electrical, put them on a truck and snap them together at the site. Now you can produce them wherever labor costs are low and assemble them in a matter of days or weeks rather than months or years.
This doesn't get you out of zoning restrictions but could allow you to recover from their historical effects more quickly after zoning reform is achieved.
People keep saying this, and it keeps not happening in a significant way as described. Trucking assembled parts is harder than trucking the parts, which tends to limit the distances assemblies are trucked. It becomes cost efficient to truck construction workers (even if it's not great for the workers).
That said, some assemblies have become pretty common, I think preassembled roofing trusses are frequently used in favor of framing on site.
> It becomes cost efficient to truck construction workers (even if it's not great for the workers).
This gives me a different idea and I wonder if it's worthwhile.
There are industrial robots that e.g. mass produce cars. Suppose you make one to mass produce housing, but instead of putting it in the factory you put it on the truck. Put it on the construction site. It takes a pile of lumber, cuts it to length and turns it into walls, puts the pipes and wires through the walls etc. This is the kind of thing that existing industrial robots can actually do if you program them appropriately.
Then you send it across the street to put together another building. Assembly line, but the products are big so instead of moving the products to the next station you move the robots.
I’ve worked on those robots that mass produce cars. The idea that you can ship them from site to site doesn’t really work. They require a lot of support infrastructure. The use a lot of large parts (dies in the case of cars) that are heavy and must be constantly swapped out. They require a lot of constant tuning that would likely be made worse when subjected to the vibrations of transit. They require whole specialized teams just to maintain.
Those sound like things that are actually specific to cars, which operate on metal with tight tolerances because it e.g. has to hold compression in a cylinder.
Houses are made out of wood and tolerances are measured in centimeters if not inches.
This sounds like conjecture from someone who hasn’t worked in construction or automation. I’ve worked in both. Problems generally seem much simpler when we don’t have much experience with the nuances and details of execution. Some tolerances are forgiving (like framing, which can be corrected by a finish carpenter) and other systems are much more difficult. Both take some level of AGI to problem solve that comes in the form of a human. That's why there are "design" drawings and "as-built" drawings that (in my experience, at least) never match.
I'm not saying its impossible, but I think the marginal costs are too high to replace what we already have. In addition, society has been moving towards individualization since the 1980s. We aren't in the Henry Ford days where people are ok with "any color of car as long as its black." People want individualization when it comes to their homes as well, and that lack of standardization makes automation more difficult than building a modern Levittown with robots.
I see the problem but have a hard time squaring it with history. Decades ago I had an old professor who spoke about how he was tasked, as a student decades prior yet, to write a report on what people will do with all their free time due to automation.
And yet, here we are with people still working many hours on average and many jobs going unfulfilled. I personally think it’s a problem with our relationship to work, rather than limited opportunity for work. Humans seem to have an insatiable apple for more, which requires continued amounts of work to be done. I think the bigger problem is getting people to have the skills to do the jobs that will still need to be done.
Retired people can provide a lot of value in ways that can't be expressed in money. A lot of parents will be fscked if they don't have grandparents to help out with kids.
Too many people here use the drive-by "downvote" as a means of expressing their disagreement. This comment is a perfectly rational and polite contribution to an on-topic intellectual discussion of retirement, yet has received a large number of downvotes.
People, if you disagree, that's fine, but make some kind of a (polite, rational) counterargument rather than abusing "downvote" to express your visceral disgust at becoming aware of an opinion that differs from your own.
Also, to tag in, I believe downvoting is best to mark something that goes against the HN guidelines rather than just a sentiment you may disagree with.
Why not? Why is working all (or nearly all) of your life the default?
I forgot which, but one of the more popular economists of the last century believed that, with productivity gains, people would be working much, much shorter work-weeks by now.
He was only sorta wrong: the productivity gains did actually happen, but we decided to use the extra time to do more work, not do the same amount of work and take the rest in leisure.
There's nothing that says that we as a civilization couldn't decide to slow down and relax more. I know that this won't happen; capitalists run the world, and they'll never accept this sort of arrangement. But it's not like this is some sort of inherent natural must-do state of existence.
Several decades? In Netherlands retirement age is 67. Will probably be 70 by the time I retire. Males live 75 on average so that's less than a decade of retirement.
I'm unsure if you're being facetious so I'll take your comment at face value.
Government isn't a static thing - especially one that is elected by the people (for the people). Sooner or later members within said government will also consider retirement. So even if you can elect a government that disagrees with #1, you won't be able to hold it for too long.
"People ought to be able to retire" ... I assume that you mean the idea that people who have worked most of their lives should be able to stop working something in the age range of 60-70, and then enjoy at least a moderately comfortable life until death.
If that assumption is correct, this is a relatively new idea, at least in the sense that government has any active responsibility for it.
I can absolutely guarantee you that there are currently elected members of the US Republican Party, and similar political parties in other countries, who do not agree with the concept that government has any role to play in this. Don't work hard enough during your life? Your problem. Don't save/invest appropriately ? Your problem.
100 or 150 years ago, the idea that there would ever be a US government that would take notable steps to try to ensure a moderately comfortable life during retirement would have seemed like a pipe dream. It remains something upon that some political ideologies do not agree with.
With the excessive debt (which is not slowing down) the government is planting the seeds for high inflation in the long term. This historically has been very bad for equities (in real terms).
No, I mean societally it's unaffordable. The government will eventually need to raise taxes significantly or begin means testing it. The current system is mathematically unsustainable
The current system is mathematically unsustainable pretty much by the design of a certain political faction interested in demonstrating the incompetence of government. Removing the income cap—currently around $160k—on the social security tax would do a great deal to make social security sustainable (and more equitable).
> The current system is mathematically unsustainable pretty much by the design of a certain political faction interested in demonstrating the incompetence of government.
The current system is mathematically unsustainable as a result of politics.
If you're going to untie benefits from payments then the first sensible thing to do is to make the same payments to everyone instead of giving more to people who made more money, but this would result in large numbers of affluent retirees voting against you.
If you're going to untie benefits from payments then the second sensible thing to do is to eliminate social security tax whatsoever and fund the program from general revenues, which would remove the need for the farce of a "social security trust fund" (the government owes itself money: it's a debit and a credit in equal amounts and nets to zero). But then people would condemn you for "bankrupting social security" or "stealing the trust fund" or similar nonsense, funded by the people the tax burden would be shifted onto.
Removing the cap while leaving the program as it is not only is worse than either of these things, it doesn't even solve the problem, because the program as-designed would then be making higher payments to all of those people when they retire which would consume more than all of the money they paid in because people who made more money tend to live longer.
The government has a fund that is used to pay for SS. The fund is an asset they’ve committed to using to pay the liability of their pensioner promises.
That fund is an asset full of assets. Those assets are government debt. Owning your debt basically nets to 0.
I agree for a snapshot in time. I think the distinction is that if the liability includes future payments to current citizens posting into the system, the liability may outpace the asset.
The amount of expected social security payments is independent. They don't have enough "money" in the "trust fund" for that regardless.
The point is that the "trust fund" is a NOP. It's like writing a check to yourself. When you go to deposit it into your account, your account balance doesn't change.
Every penny the Social Security Administration withdraws from the "trust fund" is either coming out of that year's general revenues or is causing the US government to sell more treasuries into the bond market. It's the same thing that would happen if the "trust fund" was empty and the money the Social Security Administration pays out in excess of what it collected that year came out of general revenues or deficit spending.
Worrying about what happens if it "runs out" is ridiculous. It's like worrying about what happens if you run out of checks you wrote to yourself. What you need to worry about is where you're actually going to get the money.
Which you can go ahead and do already because both "social security tax" and "deficit spending" aren't particularly ideal, but that's what's happening today. Social Security tax is one of the most regressive taxes we have.
>The amount of expected social security payments is independent.
This is the kind of economic theory that loses people. It’s like what economists say deficit spending doesn’t matter because a govt isn’t like a person. It certainly matters if confidence in the system matters.
The fact that you acknowledge the money comes from side other source implies there’s a tradeoff. There’s no free lunch here, regardless how creative the accounting gets.
The Social Security Administration charges tax to Bob and then uses the money to make payments to Alice. For some years it was taking in more than it was paying out, so it used the rest to buy US government bonds, which is really just giving the money to Congress to spend on something else. Then Congress spent it on something else. It's all gone. All you're left with is a piece of paper that says the government owes itself money -- and not even as much of it as Bob was promised.
Now Bob is retired and expects his money back. But most of the money went to Alice and the rest went to Congress in 1994. There's no money. If you want money to pay Bob then you need to collect more taxes or sell more government bonds into the market.
So which of those things do you want to do? And if you want to use tax revenue, do you want it to be the regressive inefficiently duplicative social security tax or general taxes that don't charge higher effective tax rates to people who make less money?
I’m aware of the system, but all you’ve done is explain how the tradeoff works. It’s also how governments raid pension coffers to pay for something else like infrastructure (see Illinois). I’m not claiming I receive “my” money in SSI, but I am saying there is a point beyond which the system becomes untenable. At some there is a tradeoff because the money is gone. You could raise taxes or pay interest on a new loan, but again, that only works when there’s still confidence in the system. What happens when there is no longer confidence? Interest rates become untenable or the citizenry will not continue to support additional taxation.
Now I will agree that this is a contrived problem because SSI is a contrived system. We could just change the rules and make it continue to work, but that will come with tradeoffs.
If they remove the cap on retirement contributions they should also remove the cap on retirement payouts. I would love to see social security pay former CEOs millions of dollars per year:)
No, they shouldn't. SS is meant to prevent destitution, not enable luxury. Wealthy Americans owe the working and consumption classes whose sacrifices make their riches possible; there is no such obligation to ensure those elite earners get back even what they paid into that particular channel, at the expense of people who are much less well off, when they have other resources to draw from.
You might not think that's fair. I do. Even under this hypothetical regime, I know who I'd choose to be: rich and paying a ton in taxes, in a heartbeat.
Devils advocate: by subsidizing the “consumption class” you enable more consumption. I get that’s how our current economy works but there are probably a lot of negative externalities associated with increasing consumption.
That's fine. Sure, there are downsides that increase as consumption increases, meaning that overconsumption (however that's defined) is undesirable. However, consumption enables cultural expression that otherwise would be economically untenable. Art, design, music, etc. benefit from economic incentives to overproduce beyond subsistence. That people go above and beyond in their productive capacity in order to enable creators to create freely and contribute to the corpus of human expression is something that should be recognized as the sacrifice for the collective soul that it is.
That's a good point, and I'm in favor of those 'cultural expressions'. But I think we're fooling ourselves if we think somebody is buying a gas-guzzling SUV, or the next iPhone, so they will have the ability to write the next great American novel. I'd venture that most consumption is a status game.
I think my larger point is we have to zoom out for a systems level analysis. We shouldn't assume that the production is de-coupled from the consumption, and production can come with a host of negative externalities. I'm not convinced that wonton consumption (especially for the sake of itself) is a net positive, given human nature's tendency to be insatiable with regard to consumption.
>I'd venture that most consumption is a status game.
I would include the debasement of one's moral soul for social-climbing purposes in the set of aforementioned sacrifices. :)
In any case, I did mention the dangers of overconsumption. There is something in between that and subsistence that is a net-positive for society (in this epoch, at least).
I don't understand why the mental model for SS is any different than any other service the government provides. People don't expect their tax payments to proportionally determine: their access to roads, law enforcement services, fire protection, access to GPS or weather data, etc. Government's purpose is to facilitate the common good. Some fortunate individuals are able to contribute more, some less fortunate individuals are able to contribute less.
I'm relatively lucky in that I do hit the SS income cap every year. And I think it's extremely stupid that my paycheck suddenly grows 6.2% well before the end of the year every year. I can absolutely afford to continue paying my 6.2% tax, just like everyone else, and not need special treatment when withdrawal time comes in retirement.
Social security was sold as an insurance program and would have to be completely redesigned to operate like other programs -- you'd essentially want it to be a UBI for everyone over a particular age funded out of general revenues, and might be better off to make it a real UBI for just everyone.
But it's "the third rail" because there is so much money on the table. It's a program that makes transfer payments, which is zero sum, so any change will be fought hard by whoever ends up worse off than they are under the status quo.
How is it like insurance? At least from one perspective, insurance is hedging risks - you put in a little and if something happens, you get a lot back.
Social Security is compulsory savings, and you get out pretty much what you put in.
(Maybe I'm focusing too much on one word.)
> it's "the third rail" because there is so much money on the table.
Also, I think because people feel an existential threat - some people rely on that money to survive.
And because, after seeing that deduction every two weeks for their entire lives, they want their payout.
Really, it's not like insurance, because no insurer would structure their program the way that social security is structured.
But it is like insurance in that the program is named Old-Age, Survivors, and Disability Insurance (OASDI) Program.
It's also like insurance in that the payout is related to the premium / taxes. If you pay your premiums and experience the covered risks, you (or your survivors) get paid.
It's not like savings, because if you don't experience disability, or old age, you don't get paid. Your survivors might still get something though, I don't know much about survivor benefits.
Disability insurance is available from private insurers, but with different terms. Old-age insurance is more or less an anuity, again available from private insurers, with different terms.
The biggest difference with social security is that smaller incomes (and thus, smaller payments into oasdi) get a larger payment per dollar income if they experience a covered event. Another major difference is that if one has multiple former spouses of marriages that lasted at least 10-years, they're all potentially eligible for spousal benefits and they don't have to share it: no private insurer would sign up for that. Also, the actuarial tables are rarely updated and rather out of date at this point.
It pays until you die instead of paying until you run out of savings. The risk it's insuring against is that you live longer than the average person and outlive your savings.
The private insurance companies that offer this type of insurance call it an annuity.
> Also, I think because people feel an existential threat - some people rely on that money to survive.
Nah, the more sensible of the reform proposals are the ones that convert it into a fixed payment for everyone. Those proposals are still every hard to pass because some people would get more than they do now and some would get less, and the people who would get less are the more affluent people with no existential risk, but they would still fight it.
> And because, after seeing that deduction every two weeks for their entire lives, they want their payout.
The program started by making payouts to people who never paid in. Their money is already gone, given to their own parents.
Think how many problems could be solved by removing (democratically) that faction: Social security, climate change, immigration (to a significant extent), education, et al
This is a common and fundamentally incorrect misconception about Social Security. Many subsequent policy debates are then misinformed.
Your money is not ever saved for you. Your retirement is NOT funded by your own past taxes. Your retirement is funded by those younger people who are then working and paying taxes.
Payments to retirees are made out of _currently incoming funds_. That is, the money paid in taxes by people currently working is immediately distributed to retired people who are receiving Social Security payments.
It is, in other words, NOT a savings plan. Full stop.
This scheme sort of worked in the 1930s when life expectancies were much lower and only a few people survived to retirement age relative to the much larger number of working people paying taxes.
Since 2009, Social Security has operated at an annual loss: the amount paid out has begun to exceed the incoming taxes. The deficit is expected to increase a lot in the coming years. (See https://www.cbo.gov/sites/default/files/cbofiles/attachments...)
Whatever you may think about whether Social Security is a good idea or whether the goverment ought to provide for retirement, it's clear that the current structure is not going to do that for much longer. A large-scale reform of some kind is coming.
Isn’t the implication that solvency can be maintained by increasing the age of claimants? It doesn’t have to be a drastic step function, it could be slowly phased in.
That would be theoretically possible, yes; but all proposals along those lines so far have been met with staunch and bipartisan political opposition. Attempting to alter the retirement age seems to be political toxic waste.
Social Security in the US is very much a wealth redistribution scheme, and more and more so as time goes on. See adjustments to retirement age and bend points in the benefit formula.
I believe human ingenuity and power over the elements goes up 7% a year, of which, the stock market is a proxy for. We are a networked organism and good at leveraging innovation at a global scale through supply chains. I see no reason to be pessimistic, we have AI, we have better space flight, we constantly improving energy sources.
Then why didn't the markets go up in Japan and Europe (per the GP)? Also, why do the US (and maybe other) securities markets increase when the underlying economy is performing poorly?
The US is highly dependant on massive amount of immigration to maintain demand. Couple that with a few other things, such as the petrodollar, and you have the US behaving in an odd manner that I don't believe will last forever.
Differences between countries, cultures and people do exist. These differences will manifest themselves as variations in productivity, ultimately leading to unequal growth rates.
One thing to consider though is that our nation has taken a lot of debt -in many philosophical forms- to fuel that growth.
Government deficit spending of course helping the economy. But we eventually have to pay taxes to cover that.
Citizens debt fueled spending on homes and goods. Corporate debt similarly. Student loans of course. Individuals and companies can only tolerate so much debt.
Our oil dependence never accounted for the cost of global warming and pollution, but we’re about to pay for that soon. This applies to many materials we consume, oil being the most prominent.
Corporations have systematically slowed pay growth while increasing prices, eventually consumers will be unable to afford enough goods to keep the machine spinning at full (growing 7%) capacity.
Our shrinking population from historic highs means each working person will need to contribute a bigger share to reach that 7%, while having more people to support.
I agree that the American stock market has been an outlier, and most Americans don't realize the extent to which that is true; it's good that you do. But compared to buying and holding a widely diversified and low cost portfolio, what was the better strategy for investors in other markets? What would be the better strategy for Americans over the next 40 years (not knowing if it will be a miserable time or not)?
I think this is a case of "time in the market" being the least worst option. The market may reward it, or it may not, but hard times are hard times and I don't see any obvious way to avoid them without exposing yourself to a lot more risk in other ways.
People keep talking down the US but the only advanced economy reliably innovating at scale. Especially in the post-COVID era, as China faces growth collapse.
You don't have to look far to see that all the major tech developments of our species are coming out of the US: Generative AI, Reusable Rockets, self-driving cars, mRNA, Genetic Engineering, NIF Fusion, VR, etc. The US could strike it out on any single item and spark another industrial revolution.
Plus we're still king of the hill in so many other categories (World's largest producer of energy, world's largest agriculture producer, world's largest military, etc.) If you're an investor, the idea that you'd bet against the US economy is a hilariously bad take.
Good investing has never been about X will make a lot of money, buy X. It's about what price are you buying the money that X will make. Right now, a lot of future money US will make is baked into the price of those US companies. You'll pay $100 for $4 of US earnings or $8 of UK/Japan/Netherlands/Canada/Sweden/etc. earnings. People already expect US earnings growth to be almost double. The question is do you think it will outpace even that? Even if you think US earnings growth will be somewhat better than the rest of developed economies, it's a worse investment.
For example, developed economies index, VEA, outperformed US, VTI, last year.
This is what I think too. Now obviously we're possibly on the verge of another massive change in tech with AI but there's still nothing that guarantees that the market has to go up.
The market is composed of companies, each of these companies are composed of people trying to better their own lives by working hard. When you buy an index fund you are essentially betting on all these people collectively working hard to improve their lives and if incentives are correctly aligned this should also mean the value of these businesses growing.
> The market is composed of companies, each of these companies are composed of people trying to better their own lives by working hard.
They are composed of people doing that, people rigidly protecting their incomes and/or status, people cheating others, and especially these days, people trying to squeeze every drop of blood out of every other stakeholder (investors, customers, employees).
It could be a massive nft style boom, but if it is an nft style boom, expect a massive nearly worldwide economic collapse due to growth constraints around population issues.
Correct. Imagine if you bought and hold in Japan in the 1980's. Buy 2023, maybe you would have broken even [1]
There are 2 problems:
1. Market timing works:
a. With inside information e.g. US congress
b. Take an outsised risk e.g. Nasem Taleb keep buying/selling deep out of the money options. Lose money every day to make an outsised gain
2. You are Warren Buffet. Which is basically buy stocks like you are buying a company. Have the option of buying preferential shares. And hey 1b monkeys on typewriters...
Still totally agree with the OP. The last 40 years have been ridiculous from a macro perspective:
1. Interest rates, the most important price in the economy, the price of money, has fallen from 18% in the Paul Volker days till after covid close to 0.
2. Money has been printed like never before after the 08 collapse and covid.
It is very difficult to look at 2023, with the US fed cash rate at approx 5%, global interest rates going up, price inflation at 7%+, US national debt at $33T and growing at $1T per month exponentially, and the US paying more on Interest expense (not principal, just Interest) than they spend on the military.
I like Nassem Taleb. Invest still in index funds but invest in global infrastructure that is recession proof e..g [3]. Be anti-fragile
Part of the reason for the bull run is that people have 401ks. They have IRAs. They buy index funds. In either case the amount of americans who automatically devote a portion of their pay to buying equites has probably never been higher.
Isn't that only a problem if you are only invested in the US? There exists ETFs that are invested in multiple developed countries, such as index funds that track the MSCI World.
and the 7% is skewed towards a small % of companies that have averaged up the S&P 500, usually big tech companies. If you look at the distribution and median return its actually far less.
There are probably multiple layers of feedback loops going on, who knows how things will pan out. There's a sufficiently large enough pool of investors out there that will buy broad ETFs like SCHB, SPY, VT, VTI, etc., on any dip or just continue to DCA a little of every paycheck into those just due to its history. The US is geographically isolated from potential threats for the most part unlike Europe and Japan, is relatively self-sufficient, super diversified and lots of international exposure, and no country has as much clout on the international stage as the US for the time being so I think it makes sense the US continues to do much better. Sometimes you have trends like emerging markets, cryptos, etc., but broad US stock market seems like the default choice for high returns so long as there is capital to be allocated.
Interest rates are the thing I think could change things, but who knows. If you can get a guaranteed 5% return that's pretty nice, but it's possible we just slide into being a more corrupt/untrustworthy country for investments or baby boomers suddenly taking a disproportionate amount of money out of the market as they retire, etc.,.
> No one really knows but it wont be as good as the last few decades.
A little bit contradictory.
If you don’t think the stock market is going to appreciate then it’s not for you. Don’t invest in it at all. You can stick with savings accounts, gold, and crypto scams.
If you look at Japanese or European stock markets they tell a very different story. Similarly the next 40 years in the USA could be a miserable time for investors. I can't believe how much people take for granted that stock markets "usually go up 7% a year" or whatever.
No one really knows but it wont be as good as the last few decades.